CREDIT : Bond Prices Trend Lower

Bond prices finished mostly lower Wednesday as the Treasury conducted the second part of this week’s $26 billion in securities auctions, major banks raised their prime rates and the presumption grew that the Federal Reserve Board had tightened its credit policy.

The price of the Treasury’s 30-year bond fell point, or $2.50 for every $1,000 face amount. Its yield rose to 9.20% from 9.18% on Tuesday and was the highest level for the 30-year issue since mid-December.

In the afternoon, the Treasury sold $8.75 billion in 10-year notes at an average yield of 9.06%, the highest for such an issue in 2 1/2 years.

The sale was the second part of the Treasury’s $26 billion refunding this week.

The government auctioned $8.76 billion in three-year notes Tuesday and plans to auction $8.5 billion in 30-year bonds today.cq

Steven A. Wood, an economist for BankAmerica Capital Markets Group in San Francisco, said there appeared to be greater demand for the 10-year notes than there had been for the three-year issues auctioned a day earlier.

He said the market in general suffered from the decision by several major banks to boost their prime rates to 9% from 8.5%.

Banks use the prime rate to calculate loans to small- and medium-size businesses and for some types of consumer loans, such as home equity loans.

Although changes in the prime rate generally trail changes in market-based rates, Wood said the increase “establishes a new floor and it’s not likely rates would go back down.”

The federal funds rate, the interest that banks charge each other for short-term loans, slipped to 7.063% from 7.125% on Tuesday.

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